Viewing Question: My broker is showing me these things called structured notes which give you 200% of the upside of the market while protecting you from the downside of the market. What’s the deal?

My broker is showing me these things called structured notes which give you 200% of the upside of the market while protecting you from the downside of the market. What’s the deal?

//
Posted BySite Admin
/
Comment1
/

1 Response

  1. The first thing to know is that your broker might be getting a pretty big commission – maybe 3% or more to sell you these. You might want to get a consultation from a fee only registered investment advisor for a second opinion.

    Structured notes can be very interesting and a few can have great outcomes, but for the most part they are not very opaque and usually pretty favorable for the banks selling them.

    The first thing to know about these is that they are actually low cost loans to the banks that underwrite them. On top of that, they are not very liquid. Once you buy them, it may be impossible to sell them until they mature.

    Lastly, the structure may sound interesting, but in almost all cases, its cheaper to build your own versions using options contracts. That being said, I have seen some great structures out there in the past and there are times when these can be interesting and useful vehicles.

Leave a Reply